1Introductory Case-Study “Quick and Affordable”: Zara, UNIQLO & Primark

4.1.1 Zara’s Three Success Factors: Speed, Speed, and Speed

Zara is a global fashion retailer which sells its goods around the world. The
retailer’s international footprint proves that national borders are no hindrance to
a shared fashion culture. Founded in 1975, the Spanish retailer Zara has stores
strategically located in leading cities across the continents
(https://www.inditex.com/brands/ zara), launches more than 10,000 new designs
each year, and is recognized as one of the world’s principal fashion retailers. It
belongs to the INDITEX Group, which also holds common brand names like
Pull&Bear, Bershka, and Stradivarius.
Zara is well known for its up-to-the minute styles and products. The main key to
their corporate strategy is their SC strategy. The following statement by
INDITEX gives the first hint of this exclusive strategy: “Our approach to
fashion—creativity, quality design and rapid turnaround to adjust to changing
market demands—has allowed us to expand internationally at a fast pace and
has generated an excellent public response to our retailers’ collections” (Inditex
2014).
While many retailers design and produce around 80% of their season’s
inventory,
Zara keeps back 50% to be produced in the middle of the season. This way they
can react if, for example, the hot trend of the current season is skinny instead of
boot-cut jeans. A full team of fashion experts keeps an eye on upcoming trends
in each country on university campuses, night clubs, and fashion shows. All
research and design activities are steered from Zara’s headquarters in La Coruña
in Spain. For production, Zara has its own high tech factories and a number of
subcontractors.
However, Zara keeps outsourcing to a minimum and produces primarily in
developed countries to provide better quality control. To keep responsiveness at
the highest level, many garments are kept in a generic unprinted stage. This
approach is called postponement strategy, since products can be modified from
generic to finished according to customer demand.
Procurement offices in the UK, China, and the Netherlands deal with all
purchasing activities. In manufacturing, Zara links the two sites of SC
strategies. On one site they import 40% of their products as finished goods from
low-cost countries. This strategy is used for “basics,” or products that are
unchanged by fashion trends such as white and black T-shirts. All other
materials are bought from Mauritius, New Zealand, Australia, Morocco, China,
India, Turkey, Korea, Italy, and Germany.
Zara tries to source locally instead of globally, thus reducing transportation
costs.
Short lead times are another key factor for Zara. Where other fashion companies
supply every 3 months, Zara replenishes its stores twice a week. The company
provides the necessary fundamentals for subcontractors to meet their agreed
upon
delivery times.
To implement its SC strategy, ZARA redesigned its inventory management.
Previously, goods were shipped from two central warehouses to each of the
stores, based on requests from individual store managers. These local decisions,
when assessed on a global scale, inevitably led to inefficient warehousing,
shipping, and logistics operations. Production overruns, inefficient SCs, and an
ever-changing marketplace (to say the least) were some of the problems which
Zara had to overcome.
A variety of SCOM models was used in redesigning and implementing an
entirely
new inventory management system. The new centralized decision-making
system
replaced all store-level inventory decisions, thus providing results that were
more
globally optimal. Since implementation, having the right products in the right
places at the right time for customers led to increase in sales from 3% to 4%.
Inventory at Zara is kept a smidge under the estimated sales levels. For
example,
if demand increases immensely for clutch purses, they can assign emergency
orders.
In this way, the company is able to deal with sudden demand changes.
However,
when the opposite is the case, Zara’s management determined that the
potentially
lost customers would be less costly than slow moving or last season’s products.
Speed is Zara’s key strategy. All products are to leave the warehouse after a
maximum of 3 days. At the end of each season, Zara reduces the price of its
products up to 30% to sell remaining stocks.
All items arrive at the stores ironed, on hangers, and with price tags, saving
valuable time for staff. Zara’s pricing is based not on the classical cost plus
margin principle, but on setting prices according to comparable items in the
local market.
Because of this, it is possible that the same product has a different price in each
European country. To make price tagging easier, Zara previously attached a tag
on its goods showing all prices and goods could easily be shifted from one
country to another with reduced complexity. Today, bar codes are used to tag
the products, and these can be read via a scanner, showing the local price in the
local store. This also enables Zara to keep up-to-date information about when
and where goods are sold. All information is analyzed at headquarters so that
particular strategies can be
adapted if necessary.
Marketing is minimized, as Zara sees all promotion activities as distracting for
the customer. The company has managed to present itself as a fashion retailer
with everchanging and up-to-date styles with good quality at affordable price
levels. Customers value exactly these assets—making all additional marketing
efforts unnecessary.
4.1.2 UNIQLO: Basic, Casual Wear at Top Quality
UNIQLO does the exact opposite of Zara, but is no less successful. UNIQLO is
one of the largest and fastest growing Japanese companies and ranks third
among fashion retailers worldwide following Gap and Marks & Spencer. The
mother company, FAST RETAILING CO. LTD, which also owns brand names
GU and Theory, was founded in 1963 in Japan, where it still has its head office
in Yamaguchi-City. High quality and affordable products are valued more
highly than chasing the newest trend.
Products are rather casual and basic, making them occasion- and age-less, but
still
stylish, using various colors and cuts. As a result, UNIQLO meets customer
demand for clothes without presenting them on the catwalk.
UNIQLO has multiple production and purchasing offices in Asia which look
after
more than 100 suppliers each week. By doing this, the company is able to
maintain good quality control over their outsourced partners. If issues
concerning quality arise, they are immediately taken to the production units
where means for
improvements are found. Currently, UNIQLO is seeking to expand their
purchasing and production facilities to meet demand in the United Kingdom and
the United States.
UNIQLO controls its inventory carefully to maintain optimum inventory levels
for each week. At the end of each season, products are sold for 20–30% less
than the initial price to get rid of inventory.
Additionally, the fashion retailer has found a new place for selling clothes:
railway stations. The concept works fabulously for UNIQLO. Shinjuku Station
is
Tokyo’s biggest rail station and the UNIQLO store there ranks 6th out of 770
UNIQLO stores. Popularity of so-called one-day packs with basics like socks
and underwear has also risen.
UNIQLO follows the SPA model (specialty store retailer of private label
apparel)
which is a specialized model where fashion retailers track all business activities
from the point of origin up to the point of sale. This approach enables UNIQLO
to improve its business processes quickly and constantly, giving the company an
advantage over its competitors. Through long-term relationships with suppliers,
UNIQLO is always seeking ways to improve its SC. This affects selling prices.
By optimizing its SC, the company has been able to lower prices up to one third
compared to its competitors. UNIQLO promotes its products on posters, flyers,
or TV, hinting which items will be put out for sales the following week.